The Mortgage Crisis is Partly Our Fault
James Surowiecki has another great article in last week’s New Yorker where he compares the regulation of financial products (or lack thereof) to the way everyday products are regulated.
With consumer goods, there are reliable third-party watchdogs, like Underwriters Laboratories and Consumer Reports. In finance, third parties—like debt-management services and mortgage brokers—are often conflicted at best and corrupt at worst. And buying a house is far more complex, and confusing, than picking out a refrigerator.
Most of us are willing to do a ton of research when we buy a new appliance or tech gadget. We’ll learn a little bit about the megabytes and the megahertz. We’ll go to a few places to make sure we aren’t being had.
But when it comes to financial products, most of us seem to believe we aren’t smart enough to figure it out on our own. So we trust “experts” to handle it for us. These experts aren’t stupid, and they know you feel intimidated by this stuff. That’s how so many people ended up with mortgages they couldn’t afford.
That’s why so many people are getting screwed with their finances right now: they trusted instead of taking matters into their own hands.
I know this stuff is boring to most people—but when you buy a house you are making a HUGE commitment and you need to know what you’re getting into. Especially because there is no Consumer Reports for these kinds of things. Personal-finance blogs are the closest thing I can think of to a place where you can come and learn about banking, investing, saving, etc.
How sad is that?
Either way, it’s up to us to know what papers we sign and what commitments we make. We should know that taking out a mortgage that will cost you 50% of your gross income is a bad idea, regardless of how much you’d like to say to yourself, “Well, if they’re willing to loan me that much, I’ll take it!”
Is it our fault that the mortgage crisis happened and that it took the economy down with it? Not entirely. But our collective ignorance certainly didn’t help matters.
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July 8th, 2009 at 2:43 pm
[...] because of the rain, but the downward spiral continues as The Writer’s Coin examines why the mortgage crisis is partly our fault. Unfortunately for “us” he’s not just partly right. And yes, while you can lay [...]
July 9th, 2009 at 1:14 pm
Awesome post – the problem is going to take awhile to go away and I feel will eventually repeat itself. How else are we going to fill all these empty houses unless we give out ridiculous mortgages? On a side note – isn’t scary that the ‘mort’ means death?
July 11th, 2009 at 4:47 am
we should let the major “too big to fail” financial institutions in this country go bankrupt. This is just what the right wing said before the Bush administration let Lehman Brothers do just that. The result was that the entire global financial system would have melted down without massive government support. I’m not aware of any respected economist who thinks that letting Lehman go bankrupt helped to stabilize the financial crisis. On the contrary, it is generally blamed for making things much worse.